Alberta's government wants reliable electrical system, proposes market changes to get there

The Alberta government wants electricity providers to commit to selling power at a fixed price 24 hours in advance in what's called a "day-ahead market" to help control costs.

Affordability and Utilities Minister Nathan Neudorf says the province also intends to make power plants — not consumers — shoulder the cost of adding more transmission where it's in short supply. That would include the costs of both adding transmission capacity where the system is overloaded, and building new lines to new power plants far from the existing network.

"We want more sustainable energy and we want low cost and affordability, but we are also recognizing that what we absolutely need is reliability," Neudorf said in a Wednesday interview.

The proposals, which are part of an overhaul of Alberta's for-profit, deregulated electricity market, have raised the ire of renewable power producers, who say the provincial government hasn't lived up to its commitments to the industry and is putting existing solar and wind installations at financial risk.

Vittoria Bellissimo, president and CEO of the Canadian Renewable Energy Association (CanREA), says Alberta's existing system allows companies to borrow money to build knowing they should have a comfortable revenue stream to pay back those loans.

"I am very concerned that it isn't a welcoming environment and we don't want to burn existing capital to the ground," she said of the government's proposed changes. "If we scare investors away in one sector of our economy, it will bleed into others, and that will be really problematic."

Many of those projects are bankrolled by ATB financial, a provincial Crown corporation, which had $927 million in outstanding commitments to renewable power projects as of last March, according to the corporation.

Legislation coming in spring 2025

In 2023, Premier Danielle Smith tasked Neudorf with revising Alberta's electricity market — which almost all stakeholders agree is needed.

With the hasty phase out of coal power to reduce greenhouse gas emissions, the rapid growth of wind and solar power in the province and soaring consumer power bills, players say the market design is outdated.

On Tuesday, Neudorf wrote to the Alberta Electric System Operator (AESO) asking it to prepare restructured energy market rules by the end of 2025. The letter says government wants a day-ahead market, and the introduction of up-front and non-refundable transmission payments from new power generators, depending on how close they are to transmission lines with capacity. The details are yet to be decided.

Although Neudorf intends to introduce enabling legislation in the spring 2025 sitting, he says most of the changes will happen through regulation.

The minister also instructed AESO to bolster power interties with nearby jurisdictions, including already planned upgrades to the line to B.C., allowing the line to Montana to function independently from the B.C. line and replacing equipment on the tie to Saskatchewan, Neudorf said.

Duane Reid-Carlson, industry consultant and president of EDC Associates Ltd., said many of the minister's requests reiterate what the AESO and industry players said they wanted.

Right now, the AESO covers the cost of constructing transmission lines to where power is produced, and those costs are passed on to consumers.

However, the changing nature of electrical production resulted in overbuilding transmission in the north part of the province and a lack of capacity in the south, he said.

If the province introduces incentives to generate power where the transmission system already has capacity, producers can factor that into their decision making about where to locate, Reid-Carlson said.

He said this change could help to ensure Alberta consumers are more insulated from "grid alerts" — when a surge of power use exceeds supply and the regulator may ask the public or industry to unplug appliances and turn off lights to prevent blackouts.

According to AESO data, there have been 78 grid alerts between 2006 and October 2024. In April 2024, a critical shortage of power prompted AESO to ask suppliers to cut power to some customers, leading to some temporary blackouts.

Adopting a day-ahead market should also help to prevent power prices from spiking when supply is taxed, Reid-Carlson said.

It means power producers must commit to sell their electricity at a set price for the next 24 hours, and face a financial penalty for choosing not to provide the promised power at the promised cost.

Reid-Carlson says Alberta imports more power than any other province, and it could be more economical to overproduce power and sell it to neighbouring jurisdictions.

Critics say proposed market damaging to wind and solar

However, proponents of renewable energy projects have misgivings about the new direction.

Jason Wang, senior analyst in the Pembina Institute's electricity program, says it would create an uneven playing field favouring big, bulky power plants, such as natural gas generators, and penalizing more distributed sources of energy, such as wind, solar, and storage.

"That doesn't necessarily increase reliability and definitely is not the most cost effective way of building the grid of the future," Wang said.

Lower-carbon power production is also among the cheapest, he said. The rise of electric vehicles, artificial intelligence and other power-guzzling data centres will also increase demand.

Bellissimo, of the renewables association, said adopting the changes in the proposals would take Alberta in the opposite direction from provinces like B.C. and Ontario, which are bulking up on renewable power generation to bolster supply.

The proposals could make it economically unfeasible to build wind and solar projects in Alberta in the future, she said. 

Bellissimo said in the third quarter of 2024, renewable generators in Alberta ran into transmission congestion 45 per cent of the time, meaning they couldn't get their power to market.

The construction of new transmission lines has been delayed, she said, and now the AESO may be adding more costs to renewable producers with a day-ahead market, none of which was contemplated when proponents built the plants.

"It feels like death by 1,000 cuts," she said. "You can't get your product to market and you aren't going to get paid what you expect to get paid, and then you're going to have additional costs thrust upon you."

Neudorf said when the government placed a seven-month pause on the approval of new renewable power projects last year, it should have signalled to industry the system would be changing to protect consumers.

He said similar changes are afoot in some U.S. states.